When people talk of the International financial institutions (IFIs)they usually mean the two Bretton Woods Institutions –The International Monetary Fund and The World Bank . Strictly speaking any multi-lateral organization with financial operations is an IFI –for example , the regional multilateral banks , regional monetary authorities or some agencies of the UN that disburse funding. However in practice the term IFIs is understood to mean the two global IFIs-the IMF and the World Bank. In 1999 the World Bank and IMF adopted a new set of policies to guide lending to some of the world’s poorest countries.
World Bank and the IMF laid out a framework to be followed by poor countries wishing to make use of various concessionary lending facilities . Yet due to several reasons, they are vilified for their roles in oppressing the poorest people belonging to the under-developed and developing countries . Indirectly through many country representatives, unequal distribution of wealth, high interest incurred on borrowings and directly through several (IPGs) The International Public Goods. These at the end of the day affect the health, safety and the rights of those populations that are a part of it .
but these institutions that claim very different roles in supporting and stabilizing the global financial system and in the eradication of the poverty (which we shall discuss shortly) are posed with several challenges as a result of which it is said to be ineffective in supporting the poorer countries. First –it is challenged by the explosive growth of capital markets and their extraordinary volatility with the consequent potential for the emergence of multiple equilibria in exchange markets –and also for devastating financial crisis.
Second-the massive reversals of previously large capital flows from the developed to the developing countries. Third –failure to attain rapid rates of growth. Fourth –to policy all the recommendation that is challenged by important differences in the structural characteristics and the institutional frameworks of the developed and the developing countries. Still IMF and World Bank falter at many points which they must rectify in order to solve the problem of oppression.
They are – • Under-representation of developing countries. • Over-head costs (administrative budget plus addition to reserves) are shared less equitably between two groups of members. • High rate of program failure. Discussing the various roles of these financial institutions we find that there are a several loopholes which could be rectified by ‘thinking out of the box’, by taking a fresh look at the pragmatic view of the problem in order to arrive at an independent assessment.
Following the commitments of all participants in the Monetary Consensus to in increase the voice and participation of developing countries and transition economies in Bretton Woods’s institutions, the issue of governance has come to the fore of the IMF and World Bank. Nearly 37 fold has been increased in quotas since then, the share of basic votes in a total has declined from 11. 3to 2. 1percent, despite the quadrupling to the IMFs membership. This has substantially shifted the balance of power in favour of large quotas.
Countries away from the compromise agreement contained in the IMF’s articles of Agreement that sought to protect the participation of small countries in decision-making . As a result voice of small countries in discussions has been substantially weakened . Because of the power structure, IMF is seen by many observers in developed and developing countries as an instrument of control, imposing austerity in developing countries to protect the interest of western creditors
What could be done is –a realistic approach should be adapted to the quota formula that ay is acceptable to both, developed and developing countries and then work backward to define precisely as to how it could be reached. Overall quotas should be related to World Trade and Capital movements or to worlds GDP. It should ensure that the size of the IMF does not fall below an agreed proportion of World Trade or of world GDP.